SANKURU ANIL KUMAR DM14203, SECTION - II

SCOPE OF PPP (PUBLIC PRIVATE PARTNERSHIP)/FDI IN INDIAN RAILWAYS

News item: Railways needs to spell out clear policy on PPP, FDI investment: Assocham
http://www.indianexpress.com/news/railways-needs-to-spell-out-clear-policy-on-ppp-fdi-investmentassocham/1041887/

SANKURU ANIL KUMAR DM14203, SECTION - II

SANKURU ANIL KUMAR DM14203, SECTION - II

In modern times, when the SENSEX of India is 18000+ and still rising, and standard of living for citizens of India, directly related to their per capita income, is one of the main things focused upon today, the conditions of the railway stations has not at all improved. Dating back to the 1950s, the then railways' condition and now has a marginal difference, though nothing to be proud of, when the same is compared to other countries' railway system. The Indian railways are contributing about 1% of the GNP to its economic development. It accounts 6% of the total employment directly in the organized sector and around 2.5% indirectly through its dependent organizations. Indian railways are playing vital role in the human resource development by investing in health, education, housing and sanitation. There is a lot of scope in the Indian Market to opening up the railways sector to Private Investment. India opened its first deal with private sector in 2006, on the Container transport sector. The Second deal is with GATX India Private Limited which is a subsidiary company of GATX (General American Transport) Corporation in 2010, for permission to lease railways wagons to Indian Railways and Private companies in India. This will signifies that railways sector in India can raise its funds through PPP. The poor supply chain system in India is costing to this Sector. The inefficient supply chain system in India led approximately USD 60-65 billion in 2011. If Government will not take proper action on this, it may leads to USD 145 billion in 2020 (As per experts forecasting). The supply chain system in developed countries contribute only 7 - 8 % to their country GDP, but in India it is almost 12 -13 % of Indian GDP. Indian railways are the strength of the supply chain system in India, but it is not fulfilling its role completely. British people started the railway track in India. After British ruling, Indian railways added only 10,000 k.ms tracks, where as the traffic has increased drastically i.e. around 1000% and population also increased. In the same period, our neighborhood country China has added about 70,000 k.ms tracks to its railways network. The Chinese Railways plans to spend USD 292 billion over 10 years. This translates to USD 30 billion per year spent on the Chinese Railways for Capital Expenditure. In contrast the Indian Railways spends just a quarter (1/4) of what the Chinese Railways spends. The proposed investment for the 2008-09 fiscal year is USD 7.5 billion, which in itself 21% more than for the previous fiscal year The ministry of railways came out with its Vision 2020 plan which will cover below points. a) Addition of 25000 km of new railway line b) Doubling the amount of freight carried c) Setting up the 6 dedicated freight corridors. This Vision 2020 plan costs an investment of USD 280 billion. The Indian government had given the green-signal also for this project. It is very difficult for the Indian Railways to generate these funds by itself because its operational costs consume around 95% of its revenues. The Ministry of Indian Railways requested the budgetary support of USD 10 billion for Financial Year 2012-13. The Government granted around USD 5 billion for that request.

SANKURU ANIL KUMAR DM14203, SECTION - II So it is the deficit for the ministry of railways to achieve its vision 2020 plan. In such cases, PPP is the best way to achieve its plan. For example, In India Airports and Road have benefitted to large extent from these PPP's. As per the report of Ministry of Finance in 2012, the road sector total value through PPP is around USD 35 billion. Besides all the developments discussed above, the Vision 2020 also aims at increasing the per capita income of the people who are currently employed by providing job opportunities, which will directly lead to increasing the wholesale price index of India, due to the increased purchasing power of the newly employed people. As of now Indian Railways allowed PPP only two times i.e. in Container sector and lease of railway wagons from private sectors. For these two deals itself, Ministry of India got USD 2 billion. This signifies that Indian railways itself has benefitted from PPP. Prior to these two deals, railway sector tried for PPP but it failed in 1994 and 2004 in the container sector field itself. In past, Indian railways failed to increase the PPP and more over it created obstacles with PPP by putting various conditions after the deal. For example, after accepting the license fee from the Private players Indian railways imposed many restrictions and frequently changed the terms and conditions in the original agreement. The Private players faced many losses in the transporting of goods because of these unconditional changes by railways. It makes difficult for the Private Players to work with the Indian Railways in the long-term. Now the trend is changing. Indian Government calls for the PPP and FDI in railways sector also. It sent invitations to many private players across the world. Railways modernization requires an investment of Rs. 8.4 trillion in the next five years out of which Rs. 2.3 is expecting from the PPP. It can be summarized from above, therefore, that a fund-starved Indian Railways is desperate on getting the involvement of private sector, in a major role, plus investments from private and foreign sectors. The railways sector is the biggest brick in the building of Services sector. Paving a way for rapid growth in the railways sector of India will help in the development of the Indian economy, as well as create job opportunities for the unemployed, which will help in increasing the WPI of India in the long run.

SANKURU ANIL KUMAR DM14203, SECTION - II

Financial Performance of Indian Railways from 2003-04 in Rs. Crores Source: Indiastats.com Parameters Traffic receipts Passenger Other coaching Goods Sundry Suspense Working expenses Operating expenses Reserve Fund Pension Fund Net traffic receipts Net misc. receipts Net revenue General reserve Surplus of deficit Capital at charge Investment from capital fund Total Item 5 as % of item 8 Item 7 as % of item 8 Net revenue to capital at charge 20042005- 2006- 2007- 20082009201020112003-04 05 06 07 08 09 10 11 12 42905 47370 54492 62731 71720 79862 86964 94536 94765 13298 14113 15126 17225 19844 21931 23488 25793 26127 922 990 1153 1718 1800 1972 2235 2470 2778 27618 30778 36287 41717 47435 53433 58502 62845 62489 1004 1157 1839 1711 2565 2501 2880 3418 3171 63 332 87 361 76 25 -141 10 200 39482 42759 45574 49047 54462 71839 82915 89474 87100 30637 33389 35030 37433 41033 54349 65810 68139 65000 2592 2700 3604 4198 5450 10490 2187 5515 7600 6253 6670 6940 7416 7979 7000 14918 15820 14500 3423 4611 8918 13685 17258 8023 4049 5061 7665 1055 662 -912 768 1076 1152 1495 1285 2117 4478 5273 8006 14453 18334 9175 5544 6346 9782 3087 2716 3005 3584 4239 4718 5543 4941 6609 1091 2074 4338 10206 13431 4457 1 1405 3173 45672 50124 53062 58145 63981 72238 87655 130540 102329 9.8 9.8 10.5 10.5 15.1 15.1 24.9 24.9 24540 32063 35346 38676 42394 88521 104301 123001 169216 158528 20.7 15.2 28.7 8.8 4.3 12.7 4.5 0 3.8 0.8 7.6 3.4

SANKURU ANIL KUMAR DM14203, SECTION - II

References: http://barandbench.com http://www.irfca.org/news/ir-news.php http://www.indianexpress.com/news/railways-needs-to-spell-out-clear-policy-on-ppp-fdiinvestment-assocham/1041887/ http://articles.economictimes.indiatimes.com/2012-12-07/news/35670845_1_ppp-modelsrailway-modernisation-railway-ministry http://indiastats.com http://www.thehindubusinessline.com/industry-and-economy/logistics/article2995378.ece